Texas workers' compensation law explained: the Act, nonsubscribers and what agents must know

Most private employers in Texas can choose not to carry workers' compensation insurance. Coverage is elective under Labor Code section 406.002, but an employer who opts out ("a nonsubscriber") loses key legal defenses if an employee sues over a workplace injury. Employers who do carry coverage get the protection of the exclusive remedy: injured workers receive set benefits and generally cannot sue.

That choice is why Texas workers' compensation can differ from the general rule in a textbook. A candidate who studies only the general rule, that the employer must provide coverage, will miss the Texas twist. The exam tests both: the policy mechanics in the general knowledge material, and the Texas-specific rules in the Labor Code. This guide covers the second half.

Is workers' compensation mandatory in Texas?

For most private employers, no. Labor Code section 406.002 says that, except for public employers and as otherwise provided by law, an employer may elect to obtain coverage. An employer who elects coverage becomes subject to the whole workers' compensation subtitle.

Two points trip people up:

• Public employers are the exception. The elective rule does not cover them.
• Opting out is not silent. An employer without coverage must notify the Division of Workers' Compensation in writing, and failing to do so is an administrative violation (section 406.004).

An employer can obtain coverage through a licensed insurance company or through self-insurance (section 406.003). A property and casualty agent mostly deals with the first route.

What is a nonsubscriber, and what do they lose?

A nonsubscriber is an employer that has chosen not to carry workers' compensation. The law does not forbid that choice. It makes the choice expensive when a worker is hurt.

Under section 406.033, in a lawsuit by an employee who is not covered, the employer cannot defend by arguing any of these:

1. The employee was guilty of contributory negligence.
2. The employee assumed the risk of injury or death.
3. The injury was caused by the negligence of a fellow employee (the fellow servant rule).

Those three are the classic common-law defenses, and they won most workplace injury cases for employers a century ago. Removing them is the incentive to buy coverage. The employer keeps two narrower defenses: that the employee intended to cause the injury, or that the employee was intoxicated. The employee still has to prove the employer was negligent.

On the exam, the trigger phrase is usually "employer does not carry workers' compensation." The correct answer takes away the common-law defenses; it does not make the employer automatically liable.

Can an employee give up workers' compensation and sue anyway?

Sometimes, but the window is tight. Under section 406.034, an employee of a covered employer is treated as having waived the right to sue unless they give written notice. To keep common-law rights, the employee must tell the employer in writing that they waive coverage and retain all rights of action under common law.

The notice must arrive no later than the fifth day after the employee either:

• begins the job, or
• receives written notice that the employer has obtained coverage, if the employer was not covered when the employee started.

"Any time before an injury" is the wrong answer, and it is a popular distractor. The employer also may not make this election a condition of employment (section 406.034(c)). An employee who does make the election gives up compensation benefits, and the employer can use the ordinary common-law defenses against that suit.

Separately, an employee cannot sign away a negligence claim in advance. Section 406.033 voids any agreement made before the injury to waive that cause of action. Waivers after an injury are allowed only under strict conditions, including a medical evaluation first.

What benefits does workers' compensation pay in Texas?

The Labor Code sets income benefits as percentages of the worker's wages. Learn the percentages and the logic; the dollar caps change every year and the cap on the date of injury governs the claim.

Read the benefits chapter of the Labor Code for the full text.

The reason the benefits are tied to wages is simple: they replace part of lost income, not all of it. That leaves a gap between wages and benefits, which is part of why the exclusive remedy is a trade. The worker gets prompt, no-fault payment; the employer gets protection from a lawsuit.

How does workers' compensation show up on the Texas P&C exam?

The content outline covers it in two places. The general knowledge material has a section on workers' compensation and employers liability insurance, including who counts as an employee or employer under the standard policy. The Texas-specific section has a workers' compensation part covering definitions and coverage (including section 406.034) and benefits.

Questions tend to fall into four patterns:

• Elective coverage: who must carry it, and who may choose not to.
• Nonsubscriber consequences: which defenses are lost.
• The five-day election: when and how an employee keeps the right to sue.
• Benefit logic: which benefit applies to which situation.

Expect scenario wording rather than recall of a section number. A question might describe a small employer with no coverage and an injured warehouse worker, then ask what the employer can argue in court.

What this means for you

If you are studying for the exam, build one clean mental picture: coverage is a choice, and the choice has a price. Subscribers get exclusive remedy; nonsubscribers lose the three common-law defenses.

If you are already selling, the same rule shapes your conversations. A small business owner who says "I don't need workers' comp" is partly right as a matter of Texas law, and entirely exposed as a matter of risk. Knowing exactly what is lost lets you explain the trade without exaggeration. It also connects to other Texas rules you will meet, such as the Texas minimum auto limits and the Texas Windstorm Insurance Association, where state rules change the national default.

Test yourself on workers' compensation and Texas law with the 10 free practice questions, or work through the full topic in the Texas P&C course.

Frequently asked questions

Is workers' compensation required for private employers in Texas?

No. Under Labor Code section 406.002, coverage is elective for private employers, though public employers are treated differently. An employer who chooses not to carry coverage must notify the Division of Workers' Compensation in writing and faces the loss of common-law defenses if an employee sues over an injury.

What is a nonsubscriber in Texas?

A nonsubscriber is an employer that has chosen not to carry workers' compensation insurance. If an employee is injured, the employee can sue for negligence, and the employer cannot argue contributory negligence, assumption of risk or the negligence of a fellow employee. The employee must still prove the employer was negligent.

Can an employee opt out of workers' compensation in Texas?

Yes, but only by written notice to the employer, delivered no later than the fifth day after starting work or after learning the employer obtained coverage. The notice states that the employee waives coverage and keeps common-law rights. An employer cannot require the employee to make that election as a condition of employment.

What does workers' compensation pay in Texas?

It pays income benefits set as percentages of the worker's wages, such as 70 percent for temporary income benefits and 75 percent for lifetime income benefits, plus medical benefits. Dollar maximums are tied to the state average weekly wage and change each year, so the maximum in force on the date of injury applies.

Is workers' compensation on the Texas P&C exam?

Yes. The content outline lists workers' compensation and employers liability insurance in the general knowledge material, and workers' compensation definitions, coverage and benefits in the Texas-specific section. Expect scenario questions on elective coverage, nonsubscriber defenses and the five-day election, rather than questions that depend on a dollar cap.